The Moody’s
Investor Services has downgraded the foreign currency insurance financial
strength rating of LIC to Baa3 from Baa2.
The rating outlook is stable. The
rating action has no real consequence or impact on the standing or functioning
of LIC. The LIC continues to be the
premier financial institution lighting lamps of hopes in millions of houses
across India. It enjoys the trust of more than 350 million
individual and group policyholders making LIC the largest insurer in the world
in terms of customer base. The interests
of these millions of policyholders would remain absolutely safe in LIC.

The rating
rationale of the agency is too frivolous to say the least. The LIC is downgraded because it is 100
percent owned by Indian government and according to Moody’s, the absence of a
strong foreign ownership is its weakness.
The other reasons advanced are that LIC’s business depends on domestic
economy and all its premiums are generated in India. The rating agency is also unhappy that LIC
invests heavily in government bonds and securities and has significant
investments in public sector undertakings.
In addition, the government guarantees all of LIC’s policy liabilities
including associated declared bonuses as prescribed in LIC Act. Moody’s argue
that LIC’s credit strength is very much closely linked to India’s
Sovereign rating and this justifies the insurer’s current ratings.

The Moody’s is engaged in revising the ratings
of financial institutions where ratings are higher than the rating of the
government. Prior to this action, LIC had a higher rating than the government.
Even the cursory scrutiny of the reasons advanced for downgrade suggests that
the agency’s rating action reflects the deep disappointment and frustration of
the international finance capital. The
finance capital has been demanding the privatization of LIC, allowing foreign
investments in this successful institution and withdrawal of the sovereign
guarantee on its policies. These efforts were frustrated through the massive
campaign of AIIEA and the Indian government was forced to back down on the
pernicious clauses brought to amend the LIC Amendment Act. The Indian
Parliament exhibited total confidence in LIC and advised the government not to
disturb the functioning and character of this fine institution. It appears that
the rating action of Moody’s could perhaps be another devious effort to revive
the campaign for privatization of LIC and to seek a greater role for the
foreign capital to access and control the domestic savings.

Moody’s rating
action cannot be seen in isolation from its rating of India. The Moody’s had recently downgraded India. The
Moody’s gave the reasons for downgrading India as: (1) Indian economy has
slowed down and showing signs of weakness; (2) the government has not been able
to pursue reforms especially in the financial sector; and (3) the government
lacks fiscal discipline. The rating
agency has threatened, if India
does not take corrective steps soon, Investments in India would be downgraded to junk
category.

There is no dispute
that Indian economy is going through a difficult period. But the diagnosis of Moody’s is different
from what the Indian working class feels is the problem of the national
economy. The working class rightly
believes that the reform process itself is the problem. The neo-liberal policies that created
conditions for unimaginable

concentration of
wealth denied the vast majority of people access to the market. The growth
during the reforms period has been unequal and fruits of development by-passed
overwhelming sections of the Indian society.

Unemployment and
under-employment has been the feature of growth under neo-liberalism. The working class firmly believes that If the
Indian economy has to progress in the real sense, the government must seriously
re-visit neo-liberalism and initiate measures that would increase the
purchasing capacity and enable better living conditions for the people. As
against this, the Moody’s say that the problem of the Indian economy is the
growing fiscal deficit and the government must undertake austerity measures to
cut this deficit. It is not difficult to
understand that the suggestion to cut subsidies to the poor, greater
privatization of the public assets and further liberalization of the financial
sector are all the demands raised by the international finance capital.

The Indian big
business and vested interests are advising the government to take the rating
downgrade as a warning signal and move ahead with the reform process. Today despite all the problems, Indian
economy has been growing at a faster rate than most of the developed countries
and its balance of payment position and public debt as a percent of the GDP is
much more comfortable than a large number of European economies. Therefore, the nervousness of the Indian
ruling classes to the rating downgrade by Moody’s and S&P is surprising. Perhaps they see in this, an opportunity to
force all political parties of the bourgeoisie to unite and push the process of
reforms forward.

The
campaign against LIC gained momentum after its investment in the ONGC and the
public sector banks. The LIC makes
investments after careful research taking into account its need to match its
assets and long term liabilities. ONGC is a great long term bet being in the
field of energy. In fact, responding to a query in the Rajya Sabha on 8th May 2012 ,
Minister of State for Finance Shri Namo Narain Meena said that LIC had invested Rs
20,493.60 crore in ONGC till March 31, 2012, which is now valued at Rs
21,752.91 crore. There
seems to be no justification in criticizing LIC’s decision to invest in public
sector banks. These sound investment decisions are being criticized to malign
the LIC.

With
an asset base of over 14 lakh crore and a record of best claim settlement in
the world, the policyholders of LIC have nothing to fear from the ratings of
Moody’s. Whatever may be the efforts of the detractors, the LIC would continue
to enjoy the overwhelming support of the insuring public and its employees will
spare no efforts to defend the industry and interests of the policyholders